Try as the political parties might to paint the major issues of the day in black and white terms, the housing policies tabled at this election are far from simple.

Ultimately, whether you judge a party’s proposed changes as good or bad boils down to a matter of perspective.

Look at policy from one angle and it seems unfair and nonsensical; from another, brave and justified.

Here’s how the federal election could affect buyers.

Negative gearing

The way the Liberals tells it, the choice voters face this election is a simple one: vote for the Coalition and the economy will prosper; vote for Labor and the economy will crash.

Perhaps no policy debate has underscored this political messaging more than negative gearing. The LNP wants to keep the policy as it is, while Labor wants to limit the tax concession to newly constructed properties and those already benefiting from the scheme.

The LNP argues that Labor’s policy would lead to a drop in investor activity, to the extent that this would lead to a significant decrease in demand and a subsequent decrease in prices – and realestate.com.au’s Chief Economist Nerida Conisbee agrees.

“Modelling undertook by both sides of government, as well as independent forecasters, has shown that prices will fall and rents will increase,” she says.

“For prices to rise, we need strong demand conditions… We have already seen what a drop in investor activity can do to house prices, particularly in Sydney and Melbourne. Labor’s policy change will exacerbate this.”

AMP Capital Chief Economist Shane Oliver offers a similar analysis.

“It will make the market less attractive to investors, as their choice of property will be more limited, in terms of what properties they can negatively gear… which will mean less competition at auctions and a fall in prices,” Oliver says.

And so, Labor’s negative gearing policy is seemingly good news for buyers, as it should make homes cheaper to buy.

However, given the tax break isn’t worth much “in the context of the $7 trillion housing market”, Grattan Institute researcher Brendan Coates argues that the policy will have less of an impact on prices than most people predict.

“The value of the tax breaks that Labor are proposing to get rid of are probably worth around a billion dollars a year,” Coates says.

“And even if you gross that up to what the long-term value of that is… then you’re still talking about a fall in property prices that you would really need a microscope to see.”

Coates adds that Labor’s proposed changes to negative gearing will make it easier for first-home buyers to get a foot on the property ladder, as it will result in less competition from investors who tend to bid for the same properties as first-home buyers.

Capital gains tax

Currently, people who sell an investment property that they have owned for more than 12 months are eligible for a 50% discount on the tax, which they would normally have to pay on any profit made from the sale.

As with negative gearing, the LNP wants to leave this policy as it is, while Labor wants to reduce the discount from 50% to 25%, in an attempt to tilt the playing field in favour of first-home buyers.

“All the political focus is on negative gearing because it’s more visible, but it’s the capital gains tax discount that will make more difference in the long run,” says Coates.

“And to the extent that Labor’s policies have an impact on prices, it will be felt more from the capital gains discount change than it will be from the negative gearing change – because it’s worth more.

“[Labor’s] negative gearing [policy] is only going to save a few hundred million dollars in the short term, and a billion or so in the long term, whereas the capital gains discount change will be saving a couple billion dollars a year.”

Labor’s capital gains discount would spell good news for buyers, particularly first-home buyers, as they will face less competition from investors, especially at auctions.

Banking royal commission

Few issues have dominated the headlines in recent months quite as much as the banking royal commission – and for good reason.

Led by Commissioner Kenneth Hayne, the inquiry has taken a sledgehammer to the banking sector’s public reputation – portraying it as an industry that’s willing to pursue “short-term profit at the expense of basic standards of honesty”, while lifting the veil on everything from the systemic practice of charging customers fees for no service, to the financial advice industry’s tendency to give “advice that does not serve the client’s interest, but profits the adviser”.

It’s also had a lot to say about irresponsible mortgage lending, which has already caused banks to tighten their belts.

Coates believes the commission’s final report – due to be submitted to the government today and made public on Monday – will include similar observations and lead to even tighter restrictions.

“The royal commission has signalled changes to a few areas of bank lending, and the main one is potentially stricter enforcement of responsible lending laws,” he tells realestate.com.au.

“There’s been some confusion between the banks and the regulators as to what constitutes ‘reasonable steps’ [to verify a home loan applicant’s credit worthiness] – whether that requires physically verifying transaction or credit card statements to see what a customer’s expenses actually are.”

At the moment, most banks calculate a loan applicant’s borrowing capacity by using a statistical benchmark known as the House Expenditure Measure (HEM), which estimates a borrower’s expenditure based on the state in which they live, the number of dependent children they have, and the type of lifestyle they lead.

But Coates believes that the commission’s final report will encourage the government to implement changes that force the banks into carrying out more diligent checks before lending out money.

The Labor Party has implied that it would likely accept all the commission’s recommendations should it win the election, while the Coalition has committed “in principle” to implementing the recommendations.

This means buyers could find it harder to access the finance needed to buy a house after the election, no matter who wins the vote. And this could have a big impact on prices, according to Coates.

“If you take a really strict line on assessing whether a loan is fit for purpose for a borrower, then you’re going to reduce the amount that a lot of people can borrow,” he says.

“And if people borrow less, they’ll bid less on houses and prices will keep falling.

“We’ve already seen that happen in the market – it’s one of the reasons why house prices have been falling in Sydney and Melbourne over the past year.”

However, Consibee believes that access to finance “is set to improve” in 2019, especially for first home buyers. Source Realestate.com.au